Beating the street
Peter Lynch
Purpose: to fine tune the method for picking stocks that was given by lynch in one up wall street. I want to add skills to my present method and hone my skills in picking up right stocks and make my millions
My study of peter lynch book “one up wall street” was helpful for me to activate “beating the street”
I have spent 2 activation sessions on this book so far(40 mins).I have understood the structure of the book. This book builds on Peters earlier book “one up wall street” this is more like a workbook for applying the ideas he has discussed in “one up wall street.”
He discusses a lot on mutual funds and how to select them. I am not interested in mutual funds right now. So my instant focus on was a chapter called”art and science and legwork” Here peter lynch says he discusses around 21 companies he selected and made his millions so my obvious mind probes where,
What is the process suggested by Peter lynch in each of the companies he discusses? what can I learn ?
how can I use it in my stock picking strategies?So peter lynch discusses around 5 to 6 sectors and lets us know when ,why and how he picked up these stocks?Broadly the sectors he has discussed include:Retail,Mortgages,Banks,Trading (oil company) amusement parks and some others.
I am already clear what I want to learn from each of these picks .i am curious to know what I must find out from each of the selection. As i am interested in being a value investor I am going to work on each company and draw a mind map for each of them as to what was peter base toinvest in the company ?what metrics did he follow also Peter says stock picking is both art and acience and legwork so that means its not only financials its also so other key ideas he studies in a business.in each of these companies I am going to understand the “art “ part of his selection.
From Peter Lynch earlier book I had developed a set of metrics to study from a company:
1.Study the earning and categorise the company based on earning growth rate into 6 types .this is the first thing to do.
2.check the earning line against the price line this will help us to decide whether to invest or not.
Then study thepercent sales growth vs inventory,check wheter the company debt structure is good ,check the ccash flow condition of the company.Then study the compnays product in local market.he believes that common people like me can make a killing in the stock compared to a wall street professional if he finds a product matches a certain profile.he lists them out in a chapter.interesting but may not be practical all the time.So I have this backgrowund knowledge when I am activating the book “beating the street’
I am also applying the methods by applying the ideas daily on 5 styocks.I go to money control .com(India).Select sectors to focus on.Then I compare earnings against p/e which is the first parameter to invest.if price is higher than earning growth rate ,peter says stay away from the stock.It may be wise to come back to it later .Also it may still be a good company,I will come back to it later.if I find a good one then check 10 years earning of a company. I then check its inventory growth rate against sales.i understand its cash flow position and understand the loan structure or its debt structure and then study the p/e of the stock for last 10 years.I also compare the sales ,inventory and debt structure of the company vide its competitors and then take a call to invest.
I am also activating the following books:
Buffetology by mary Buffet and David clark
MBA in a box( I have activated 7 chapters in this book,will put a brief write up on the chapters soon)
I finished a book called interpretation of financial statements by Mary buffet and david clark. Its a great books which gives us a set of parameters to compare with a company and its peers to see if the company has a durable competitive advantage.i have blend these ideas with Peter lynch when I study a company.It basically gives us guidance as to what to watch out for in the 3 financial statements of a company the Pand l ,the Blanace Sheet and Cash flow.It also explains how Buffet compares his stock to an equity bond and then explains when Buffet buys and sells a stock.
I am activating a book on welding technology( a big fat text book).i am activating this chapterwise.I will submit a write up on metallurgy soon
SO I have my hands full!!!
All the best ,have fun and thank you LSC and you Alex!!!
I will report on Buffetology also very soon.
.
